Business Succession Planning

There are a number of reasons why a business owner may leave a business. Some reasons, such as retirement, may be a planned event which the other business owners can prepare for, often years in advance.

Other events, such as death or a disagreement between owners, may happen unexpectedly which may cause a business owner to want to, or have to, give up their ownership interest.

Benefits of business succession planning

Business succession planning plays an important role in ensuring that both the business and its owners are protected in the event of the departure of an owner, whether due to a voluntary or involuntary event.

From the perspective of the departing owner or their estate, a good business succession plan provides a greater level of certainty, whereby the departing owner or their estate knows how much they will receive and that these proceeds are available due to the funding arrangement that has been entered into.

From the perspective of the remaining business owners, a good business succession plan:

• provides a greater level of control over who will
• replace the departing owner;
• already addresses the issue of where the funding used to buy out the departing owner will be sourced from;
• may prevent the introduction to the business of a third party or a family member of the departing owner who is either unsuitable for the business or who cannot work cohesively with the remaining owners;
• reduces the feeling that there is some sort of moral obligation to look after a deceased owner’s spouse and family, as this has already been done via the business succession plan; and
• offers greater peace of mind for everyone involved in the business including customers, financiers, suppliers and employees.  

 There are many reasons why a business owner may leave a business including (but not limited to) the following:

• death

• total and permanent disablement (TPD)

• suffering a major illness, such as a heart attack or stroke

• retirement

• dismissal

• disagreement,

• incarceration, and

• resignation.

A good business succession plan should cover all of these succession or trigger events.

Your financial adviser can assist with your succession planning funding with appropriate insurance advice such as cover amounts, types of insurance and policy ownership.

This editorial provides general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your particular investment objectives, financial situation and individual needs. Charter Financial Planning and its Authorised Representatives do not accept liability for any errors or omissions of information supplied in this editorial.